New leadership at Kapor Capital doubles down on diversity and impact

I'm David bank and from Impact Alpha. This is an agents of impact podcast.

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Where we're very distinctive is in being extremely hardcore in looking at the actual impact of the business as a business and who benefits.

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You know, call it woke capitalism or whatever, but people are voting with their feet and with their pocketbooks and we are already through our portfolio companies, changing the economy of what were formerly underestimated cities.

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That's Mitch and Frida Kapor of Kapor Capital, veteran tech entrepreneurs and investors. We got together with Mitch and Frida, along with Kapor Capital's new co managing directors, Brian Dixon and Ulili Anavakpuri, to talk about the leadership transition at the firm where legacy venture capital falls short and how to get top quartile returns along with diversity and impact. Let's jump right into our conversation. Welcome. Mitch and Frida Kapoor.

0:31

Thank you, thank you.

0:59

And Brian Dixon and Ulili Anavakpuri, welcome.

1:00

Thank you for having us.

1:03

The occasion, as you know, is a transition that's going on over there at Cape Core Capital. And congratulations to Lily and Brian for stepping up to, I guess it's managing partner is the right term of art now.

1:04

Yeah, co managing partners. That is our role.

1:17

We have of course noticed that Kapor Capital has been raising a fund. There was a filing with the SEC a while back that said you had reached almost $100 million of what I think was supposed to be $125 million fund. So I know you'll be busy. We did have a deal, Ulili, that I think you closed on Kayaba Care. Maybe you could just tell us a little bit about how you think about the gaps to be closed and that deal in particular, but more broadly, sort of the strategy that you're working on.

1:20

Yeah, no, thank you. We were really excited to co lead Kayaba Care, which is part of our healthcare portfolio, which I lead. They're specifically focused on maternal health and helping reach expectant mothers who are most at risk. So those who are finding out that they're pregnant in the emergency room, I think for us, the investment in Kayaba kind of illustrates two sides of the impact that we like to have in the venture capital space. One, it's targeting a problem that is specifically faced by underrepresented groups more than other groups. So black women have three times the maternal mortality as their white counterparts. And so Kayaba Care is trying to affect change there by providing concierge service for those women who are on public assistance, who are low income, providing that white glove service that's usually only seen around, you know, higher income women have access to. And then also too they're bringing together a diverse group of founders. So two of the three founders are doctors of color. And that is again that's what we like to see, that two pronged approach where you have impact in the company and the mission of the company and a diverse team being built.

1:49

Let me ask you the same question, kind of. Brian, I know you lead FinTech and EdTech and some other sectors. How do you think about this gate gap closing kind of mandate that you have?

3:04

Yeah, you know, for all the investments we make, we're thinking about how do we invest in companies that close gaps for low income communities and or communities of color. For Fintech, it's a really interesting approach. Now we're looking at low income individuals and thinking about, you know, things such as access to credit or credit scores and trying to build that into products that we invest in. An example of this is a company, Tomo Credit. We had a chance to co lead their series A. The Christie, the founder, her lived experience was one where when she moved to this country she couldn't get an auto loan and wanted to build a company that she could have used when she was thinking about applying for that loan. One of the things that Tomo does, instead of using your credit score, they use your cash flow so they connect to your bank account. They can see how much excess dollars you have every month and then they lend based on that. So it's a fluctuating number. Instead of having a monthly payment, you have a weekly payment. Right. And so that's another way, one, hopefully individuals don't get into any trouble as far as overspend. But two, you have more data points and more data points is always good for underwriting and a chance to lend. Individuals who historically wouldn't have been able to have access to credit, I mean as a bonus they're able to start, that's usually their first card. They start to build credit, improve their credit and then graduate to other products that as I would say everybody on this call would probably have access to. So that's an example in the fintech area in education we do a bunch, we do K through 12 and we also do higher ed. An example could be of a product that we're looking for is we want to close gaps. So we're thinking about maybe a standardized test where the students might not have the same tools available to them. We've invested in a company called numeraid. Think of it as low cost on demand tutoring like and this Is, you know, we look at every question in a textbook. A student will have for six or seven bucks a month, have access to watching a tutor walk through every single problem in that textbook. And this is seven bucks a month for all of their classes. That type of, you know, it's less than one hour, one hour of tutoring, but really impactful to the students who are using it. They've just exploded recently, especially during COVID millions of students using the product and they've just continued to grow and we've been able to support them from their seed round.

3:16

I want to hear a little bit more about each of you. Brian, I know we've talked in the past and I know you're a, you're a long timer there, but tell us a little bit about your background and then I'm going to ask the same from you. Lily.

5:47

Yeah, I'll jump in. So my background, I did computer science undergrad and prior to undergrad I was always interested in entrepreneurship from starting a custom sneaker company to trying to build a Nike ID before Nike ID and flash back in the days to starting a social network right out of undergrad called Profile Linker. So I've always been technical and trying to build products and launch products. You know, fast forward. After having that experience of going out and trying to raise venture capital myself, I didn't meet any VCs of color, very few women as well. And it really inspired me to want to do this work. Went back to business school at Babson. I got my MBA and was fortunate to get an internship at KBER Capital. That was in the summer of 2011 and I've been with the firm ever since. I've held positions such as associate principal and then partner in 2015, which is our first first fund.

5:58

And Ulily, you joined a little bit more recently, but you've been there for a while as well.

6:57

Yeah, so I actually joined before Brian.

7:02

Oh, I'm sorry.

7:04

But left to go to business school. But I like I said, they couldn't get rid of me. I kept coming back and then have been been back more recently about six years ago, but had the pleasure of meeting Mitch and Freda as they were the sponsors for a scholarship program that I actually had the chance to be a part of while I was at UC Berkeley, a program called the Ideal Scholars Program for leaders of color who are attending UC Berkeley, trying to combat some of the side effects of Prop 209. So it's really great to meet them through their work there. Got to see Mitch a couple times through working at some of the the startups that he either supported financially or through his mentorship. And they come work at the Kapor center at what was then called the Level Playing Field Institute, which is now called smash, around some of these workplace issues. And then as they were building out, Kapor Capital had a chance to join the firm as an analyst.

7:05

Mitch and Frida, you've been running this, I guess for a while and you've decided to step back. You've got some homegrown talent here to it on to tell us just how you think about the trajectory of the whole firm and fund.

8:06

Well, we set out quite a while ago to see if it was possible to put our values into practice in a new kind of venture capital fund. It was very intentional and it was experimental. So way back in 2011, K Bor Capital came out with its investment criteria. We started talking back then about gap closing. We talked about closing gaps of access or opportunity or outcome for low income communities and or communities of color. And we talked about that, as Brian mentioned, having to be the core engine of the business. We're not looking for a Tom Shoes model where you give something away because that can be removed at any time. The engine of the business has to itself close gaps. As Lily mentioned, I co founded a scholarship program after Proposition 209 was passed in California which killed affirmative action in public institutions. We created a race conscious scholarship program for underrepresented students of color who had gotten into UC Berkeley race blind. But we felt that that sent an unwelcoming at best message. So we wanted to create a race conscious scholarship program to create an intentional community for unbelievably talented black and brown students.

8:22

Just to pause something that private capital could do, but that at that point public capital could not.

9:59

Exactly, exactly. So there were four of us who founded this. We hired the person who ran the program. We now have three. In addition to Ulili, we have two, two other very senior employees who are alumni of that program. We're incredibly proud of them. So we met Ulili back then and some of the amazing characteristics you see in Ulili now were evident in this high school senior, newly admitted DeKalb. What's completely amazing is Ulili, shortly after graduating UC Berkeley, she came to me. I was her boss at at Level Playing Field Institute. And she asked if we could start a summer associates program with Kapor Capital. I think based on her experience of being part of a cohort, being part of a community of ideal scholars. So Ulili gets 100% of the credit for starting the Summer Associates program. And there look what happened. Brian was our first summer associate. So it's amazing to have the two of them as co managing partners. Both of them, as you can tell, are incredible human beings, but they're also fabulous investors and they are incredibly well matched. They are completely complementary in terms of the sectors they're interested in, in terms of where their strengths are in sourcing deals, in going out there and building the ecosystem. So they both bring essential skills to the party. We are old white folks and we think it's time for us to step back. We want to get out of the way of the people Brian and Ulili and the team they're building who really belong at the forefront of this kind of gap closing vc.

10:06

Is it hard, Mitch and Frida, to step back, to let go? What does that feel like?

12:12

You know, surprisingly, it has not been as difficult as everybody told me it was going to be, partly because I work with Lily and Brian for so long and trust them and have worked beside them. So they are carrying on in the same spirit with which we started this, but in their own way, in a new chapter. And it's actually very liberating, if I can say. Frieda and I are writing a book, so we're quite busy. And it's about the first decade of what we've done in Kapor Capital and our investment thesis, because it was quite different, quite experimental, quite skeptically greeted at the time. The first decade was really about proving that the thesis works in terms of financial returns and it works in terms of the impact being achieved. And now it is time for the next generation to lead the fund in new directions. So it's been good.

12:20

The VC world seems stubbornly resistant, at least from where I sit. And I'd be interested in your thoughts on it.

13:19

Well, I think stubbornly resistant is kind. We look at the purpose of the business, the effect that is going to have in the world as being central. We always ask founders when they're pitching us, well, if this works, who's going to be better off, who's going to be worse off? Is it bringing top and bottom together? We ask that regardless of who the founder is, man, woman, black, white, brown. So where we're very distinctive is in being extremely hardcore, in looking at the actual impact of the business as a business and who Benef And I have to say, while we've made some inroads on that, that is still not at all the way Venture thinks. They're kind of counting noses and saying, oh gosh, we don't have any black founders. And they come to us in a kind of a tone that sometimes still suggests, oh, maybe it's over on aisle 12. I haven't looked there. And no, we're really. And it's freed us influence. Frida is the architect of venture capital of rethinking things bottom up, beginning on integrating together the financial objectives with the social impact objectives. No compromise. And I'll say one last thing, the mainstream still assumes that what we're doing is necessarily concessionary. We're giving up returns. And we've had this conversation thousands of times. We're not. We've proven it. We put out impact reports. And so there's still a mindset shift that needs to happen in the ecosystem about that it is possible to do good and do well at the same time without compromise.

13:28

I think one of the things that we see that it continues more than a decade in to surprise us, whether it's from entrepreneurs pitching, directing us for direct investment at Capel Capital, or whether on our foundation side it's funds pitching us for investment, that there still seems to be a lot of pressure to leave diversity out of one's deck and to leave impact out of one's deck. And so we will have founders or fund managers come pitch us and we said, wait a second, where's the impact? Where's the diversity? Where's the focus here? And they say everyone told us to take it out of our decks. Even a decade plus in there, it makes it that much harder for all of us to find each other. And I actually, somewhat jokingly, although I'm getting a little more serious about it, I actually think we need a new narrative. And I think the narrative, we should not be calling this impact investing and marginalizing it. We ought to be saying this is investing and what they're doing is greed only investing what they're doing is limited, not what we're doing.

15:17

There is also the flip side, and I've heard this from one of your investees, Block Power, which we've had on the podcast and on the calls that sometimes the impact crowd doesn't always get it and that in some cases the commercial capital may understand the opportunity, for example, in retrofitting every building in a an old line cities neighborhood, that is going to take a lot of capital, it's not necessarily a quick hit software unicorn and that maybe some other kinds of capital, whether it's a big bank that could could get behind it in that case might be better situated sometimes than a venture firm, impact or not. And they were saying that you were one of the few firms of any sort that came in and understood that, that opportunity. So there's, there's nuances on both sides, I imagine.

16:32

Indeed.

17:27

And in fact, we've just been talking with, with one of our companies that was raising a Series C. So they're obviously doing pretty well. And they were looking at a more traditional venture capital and they were getting shoved into the old model, which is growth at any cost. And this is the wrong moment to shove a company into, continue to grow at 10x every year or get pushed out of business. I think that there needs to be a lot more nuance in the old school pe, more in the PE world, and there needs to be a lot more sophisticated understanding in the impact world.

17:28

Brian and Ulily, that's a good segue to the question of are you getting handed the reins? Just as the capital dries up and the economy takes a turn and Mitch and Frida are going to go out at the top and hand it over to you, how do you see the effect of the economic situation on the companies that you're working with?

18:16

Yeah, I mean, I don't think they left us with the lemon. I mean, I think if anything we're driving a Mercedes. I feel like we're set up, actually, I'm going to say like a Subaru, because we're in a safe car, not just a flashy car.

18:39

Is it an EV, though?

18:53

It is an ev, of course, of course. You know, it has to be. That's aligned with our values. I think the great thing is, you know, Mitch and Frida, when they started this work built impact fund, it was. No one was doing it and everyone was saying, you possibly, you can't do this at all. The same thing. Frida has been pitching diversity inclusion for as long as I know her and probably for as long as I've been born, no one cared about it and no one would even listen. And so now it's interesting to see a rise in funds arise in conversation around these issues. I do think that there's still more work to be done. But having been passed the reins of an organization who's laid such a great foundation for impact, for the importance of diversity, for building workplaces that are welcome to all. I think we're set up for success in this next generation because people know we're not just, we're not new to this. Like, they know we're not just hopping on this bandwagon because it's trendy, but they actually believe that it's what you know, we are, we were built on it's the core of Kapor Capital and that we are invested in it and they've seen, seen through over a decade of work how we have shown up when it is important.

18:55

I would add to that too. Lily and I have been working together for a decade. We've done 100 deals together, whether it be lead or co lead. I mean just investing during the pandemic has been. Everybody had to kind of rethink everything. It was going virtual, it was supporting founders from remote. I mean one of the things we've always done was cast a pretty wide net. Entrepreneurs can pitch us right on our website. So there were some things that we've done in the past that actually I would say helped us prepare for this moment and we continue. Like Lily said, we've got the same recipe, we're keeping it the same. We're supporting our founders, we're doing investing our style and we know that our style isn't for everyone but we think it's generated top quartile returns in the past and will continue to do so in the future.

20:17

Speaking of the pandemic, I noticed, I think an interview that you did, Mitch, back at the beginning of the pandemic asking whether we were going to use the opportunity to really rethink the fundamentals and as they say, take advantage of a crisis to make some changes. I wonder on a broad level whether you think how we did on any of that either as an investment industry or as a country.

21:09

Well, systemically I think jury is still out. So many people are so pessimistic and there's a lot to be pessimistic about. But one thing I think that gives all of us hope is the inspiration that comes from seeing these founders who are using their lived experience and applying their creativity and coming up with solutions, whether it's in maternal care or improving credit scores or job training for folks who work in the farms and factories and in retail. I would say that's where the hope is in the innovation and the founders that we're investing in to create new solutions that actually make a difference in people's lives and can make a difference at scale. And we have that and we'll continue to do that as these very messy politics in the world sorts itself out.

21:35

I also think, you know, I think our firm, and I mean all four of us, we've pioneered many things. Ulily pioneered the Summer Associates program that brought us Brian. We were the first VC firm to put a founder's commitment in In January of 2016, as Ulili said, nobody cared about diversity. And our founders commitment said in January of 2016. So six plus years we have not written a check to a company where the founder doesn't commit to building a diverse team and an inclusive culture. It's not check the box and it's not the same for everyone. We do customized workshops. We help them set diversity goals that make sense for their businesses. We talk about diversity not as formulaic but as something where your employee base automat your customer base. And if you think about it, actually that's just really good business and it also boosts diversity. Brian wrote a medium post that two VC firms Initialize and First Round Credit his blog post in writing with the fact that they hired their first black partners. Brian said in that blog post that I think was called so youo Want to Fund a Black Entrepreneur Fund or Find. And in that blog post one of the things he said, if you don't post your jobs, your open positions, you're being intentionally exclusionary. Now whatever you think of venture capital, I still find it stunning that in 2020 the idea of posting a job was novel. But hey, we will take our wins where we can get them. And the fact that First Round and Initialize now have black partners and credit Brian says, what's in the DNA of our firm? I believe that Brian and Ulili are incredibly well positioned to keep up that kind of innovation in the firm that then influences the ecosystem.

22:39

Well, if there is, as we call it, impact alpha in all of those kind of practices, you've had the field more or less to yourselves. I guess now there's maybe the beginnings of competition. You say there are still innovations to be done and a new frontier. What are your next thoughts? Ulili and and Brian about where to find the next generation of great entrepreneurs and great companies.

25:01

Yeah, I mean I still think that we are still seeing them. I mean I feel like there's progress being made, but it's still, you know, we still are climbing Everest in terms of where do we need to get to fund impact startups to fund founders from underrepresented backgrounds at the same level that we're funding white males who are building, you know, juiceros. Like we still need to move that needle forward. I think there's so many great ideas and for me it was amazing. I look at a company like Emoca that we invested in. You know, previous to the pandemic they provided they provide medication adherence, but during the pandemic they also were providing caregiving for the caregivers so who, look, who took care of nurses while they were busy taking care of us. They put that into their platform and such essential things like, you know, I, I look at my, my portfolio of companies and Kapor Capital's portfolio as a whole and seeing what, you know, what groundbreaking work they're doing. And we saw this even more so in education and health care and financial technology when everything came to head over Covid and the world just transformed. And so that showed me one, how awesome the innovations that we had invested in were, but also how much work still needs to be done. There were still huge gaps that we saw. Who was affected the most by Covid, who died, who lost their job, who was able to work from home, who had exposed themselves. That showed me that there is just so much work we still have to do here. We need our LPs to invest in funds, you know, funds run by fund managers of color at the same rate that they do, you know, white males. We need our VCs to invest in companies run by underrepresented folks at the same level that they do white males. We need, you know, customers to buy products at that same level. It's across the board. There's still so much work to be done. And to Frida's point, we need to get to a point where saying impact is not a bad word like that is actually the standard. And if you're not impact, you are a bad actor automatically. So how do we change that narrative? There's so much that still needs to happen.

25:28

You all have been forefront not only of sort of leading by example, but actually leading the field through various initiatives and like you said, around diversity and more broadly there is something of a backlash. I feel like even in the VC world specifically, as well as more broadly, people are, are coming out, you know, against, you know, so called woke capitalism or trashing ESG as being the devil incarnate or, or, or think, you know, I think Peter Thiel said something like, you know, when you think esg, think, you know, the Chinese Communist Party, why does it arouse a kind of almost, you know, you know, visceral reaction against, you know, kind of things that, as you said, are just good business and what can be.

27:49

Well, look, I think people are feeling threatened. Silicon Valley in particular, the VC ecosystem in general has felt highly entitled. They will always tell you that they are the best and the brightest and that this is a perfect meritocracy. And you look at the demographics and you know that that has to be complete self serving nonsense. So I Think folks are feeling threatened about where would they be if they hadn't benefited from so much privilege of so many kinds. But I also think, I think, look, I think most people understand the difference between those who are reacting and those who are building something that actually makes the world a better place. So we have several of our companies that, and Ulili talked about one that, you know, what they did during the pandemic. But if you look at, you know, take a couple of our companies, Career Karma, Ruben, Harris, bitwise, Irma Olgwen Jr. And Jake's, overall, both of those companies are doing extraordinarily well during the pandemic. They moved extraordinarily quickly and actually through our foundation, we helped them as a fiscal sponsor. So bitwise, in three weeks, 20 women of color who had graduated from Bitwise Academy built onwards CA.org, a dynamic platform where anyone who had lost a job because of COVID could immediately get emergency services like food, my family is hungry. Food delivered that day. I need child care so I can go to a job or job training or apply for a job. And so dynamic access to job training by zip code, by skills, dynamic access to open jobs again, by skills and ability to travel or not. And in a few short weeks, more than half a million people had access services on that platform. Career Karma Ruben reached out and said he was gonna, he started a GoFundMe account to raise $50,000 for laptops for people who'd lost their jobs and who wanted to go to a boot camp. And I said, reuben, don't do that. We're gonna run it through our foundation and you're gonna run, you're gonna raise half a million dollars 10x what you thought you were gonna do. And people are gonna get a tax write off for it and we're going to help that many more people. So I think some of the next wave is really to see that these businesses are training thousands of people for new jobs and staying in their own communities and uplifting the economics of their own communities. Career karma was at 3 million monthly unique visitors and growing so, you know, call it woke capitalism or whatever. But people are voting with their feet and with their pocketbooks and we are going to, we are already through our portfolio companies changing the economy of what were formerly underestimated cities.

28:42

That's going to do it for this Agents of Impact podcast. You can read more about Kapor Capital and their investments at impactalpha. Com. Big thanks to Ulili, Brian, Frida and Mitch and to our producer Isaac Silk and to the whole team at Impact Alpha. Investment news for a sustainable edge.

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